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The 1% license fee

Banks have been charging their clients a 1% license fee on (in summary) international transactions. Over the years, many people have wondered whether this charge is justified. One of our clients has been courageous enough to challenge this practice in Court. On November 28, 2017, the Court of First Instance rendered its judgment and ruled that – at least in this case between our client and WIB – this charge of 1% is unlawful. WIB has to pay back the 1% it has been charging over the past five years. WIB publicly announced that it will appeal the judgment. Still, this is a landmark decision, and its (potential) precedent is significant. Unless WIB finds new arguments, our assessment is that the Court of Appeal will not overturn this decision.

What is this all about?

In a nutshell, the Central Bank has appointed most commercial banks to act as so-called Foreign Exchange Banks. In return for this appointment, the commercial banks have to pay 1% of the amount of the international transaction to the Central Bank, as per the law.

However, there is no statutory option, let alone obligation, for the commercial banks to pass on this 1% fee to its customers. This is unlike, for example, Wage Tax, where the employer is obligated by law to deduct and pay the tax on behalf of the employee.

WIB argued that they are allowed to pass on the 1% license fee as per their General Terms and Conditions. However, the Court considered that they had not incorporated a clause to that effect, so that argument was rejected.

WIB’s last defense was that the 1% license fee was an expense as meant in article 7:406 of the Civil Code. That defense, also, did not hold up in Court.

What does this mean for you?

Of course, every case is different, so it is impossible to give general answers. However, there is a high likelihood that customers of WIB are in the same position as our client. Clients of other banks should definitely look into the General Terms and Conditions with their banks. It is important to note, however, that even if those contain a stipulation that the bank is allowed to pass on the 1% license fee, they may still have a case.

Banks, of course, should talk to their legal counsel about this judgment, the implications, and how to mitigate damages as much as possible.

Our client in this case was assisted by Pieter Soons and Camiel Koster.